Example of my conservative trading strategy

[lukeaye]

Personally, this could have been a trade I would have entered at ~$2.00, however because of the continued sideways movement I would have also exited. Too much time sideways for me.

I would prefer an entry at ~~$1.85-$1.90 if it meandered back to there.

brty

Well if i bought it at 2.00 then i wouldnt know whether prices are supported or not?

Its all well and fine to say i would have bought it at this, but it doesnt comply with the strategy.

You need to show me how the strategy you apply indicates a buy at 2.00.

I can go around telling everyone how i would have bought it lower then them as well.

 

[brty]

Luke, this is part of what I wrote at post 106, this thread

4. What is the action when it gets to support (should be relatively fast bounce or I get out if I have bought).

You need to show me how

I don't need to do anything.
re-read post 106.

I can go around telling everyone how i would have bought it lower then them as well.

???

The lower price I mentioned has not happened, it would have been my preferred spot of entry if I was going to take the trade based on support. I didn't take this one at $2 because it did not meet my exacting criteria. If i was just buying on a lazy approach I could have entered this at $2. But if I had I would also be out by now because it went sideways, not up. If you think buying something the second, third or fourth time it hits support is a smart thing to do, may I suggest you research a little bit more.

brty

 

[lukeaye]

A couple of things,

1. The lower price you mentioned hasn't happened, so how can u call the price that hasn't happened a support entry point?

2. What is your criteria? You mention "what is the price action? it needs to be a sharp bounce."

How is that measureable? You have asked a question as your criteria? Not given a specific measureable entry method.

3. Do you have any statistical evidence to support that after four times support has been hit, that a move up is less probable?

I am not disputing that it is or isn't im just interested to see if you have evidence of this, or is just your opinion?

 

[Trembling Hand]

3. Do you have any statistical evidence to support that after four times support has been hit, that a move up is less probable?

I am not disputing that it is or isn't im just interested to see if you have evidence of this, or is just your opinion?

It just makes sense. Surely you want to see a support level being touched and then moving away fast. Not continually returning to the same level. To me that sounds like a dead cat rather than a rocket.

Not to mention the time cost.

 

[lukeaye]

It just makes sense. Surely you want to see a support level being touched and then moving away fast. Not continually returning to the same level. To me that sounds like a dead cat rather than a rocket.

Not to mention the time cost.

I would love to see the statistics behind the probabilities of a move up after X amount of tests of support. Also would like to see if there is a correlation between the distance that price will move relative to the amount of times S/R are hit.

Depending on the context, i believe either scenarios could provide optimal results.

And here is why, (right or wrong my opinion).

A stock is trading at $1.00. Support is established at .70 cents. A large investment firm is prepared to pay .70 and has 10 million dollars worth to purchase. If support is hit twice, only half the quota can been supplied due to available stock at this price. Demand does not increase, but rather supply moves to higher prices. It moves to 1.10 without any real strength, as there is still not enough demand at higher prices. The institution does not follow the higher prices. MUCH SUPPLY IS ABSORBED. There is still several sellers, but they will sell at higher prices.

The stock fails and returns to lower levels.

Second scenario.

Stock is under exactly the same circumstances, this time however, the price returns to a support line 6 times. The Quota is completely filled, supply has been forced to sell at lower prices as demand is still not high enough near resistance. The majority of supply is now removed within this range, and price moves up quickly, with large spread and medium volume, everyone now jumps in, price goes much higher then 1.10 as demand continues at higher prices with little supply.

There are literally 10 different other scenarios where i could think of where more support tests would indicate a stronger potential up move. And conversly 10 scenarios where too many support tests would indicate a failure.

The scenarios may also differ in different contexts, ie low liquidity, high liquidity. Whether it occurs over an hourly period, a daily period, or monthly period. The time it takes to move back to support, etc

I could imagine it would be hard to gather statistics on this, but would be well worth while in my mind. Also identifying these different scenarios using price/time/volume.

 

[skyQuake]

I would love to see the statistics behind the probabilities of a move up after X amount of tests of support. Also would like to see if there is a correlation between the distance that price will move relative to the amount of times S/R are hit.

Depending on the context, i believe either scenarios could provide optimal results.

And here is why, (right or wrong my opinion).

A stock is trading at $1.00. Support is established at .70 cents. A large investment firm is prepared to pay .70 and has 10 million dollars worth to purchase. If support is hit twice, only half the quota can been supplied due to available stock at this price. Demand does not increase, but rather supply moves to higher prices. It moves to 1.10 without any real strength, as there is still not enough demand at higher prices. The institution does not follow the higher prices. MUCH SUPPLY IS ABSORBED. There is still several sellers, but they will sell at higher prices.

No the insto will get a crossing done at 70c, or if they really want, at 72c. Conversely if they like a stock and cant get a crossing they will be happy to bid up to $1. The algobot is smarter than a limit buy at 70 hurr durr.

Second scenario.

Stock is under exactly the same circumstances, this time however, the price returns to a support line 6 times. The Quota is completely filled,

That means the seller is bigger than the buyer? Or do you mean the insto gets their fill exactly? By definition, if you're a big buyer/seller, and you get fully filled, adverse selection! ie. you probably didnt want to get filled there.

supply has been forced to sell at lower prices as demand is still not high enough near resistance. The majority of supply is now removed within this range, and price moves up quickly, with large spread and medium volume, everyone now jumps in, price goes much higher then 1.10 as demand continues at higher prices with little supply.

There are literally 10 different other scenarios where i could think of where more support tests would indicate a stronger potential up move. And conversly 10 scenarios where too many support tests would indicate a failure.

The scenarios may also differ in different contexts, ie low liquidity, high liquidity. Whether it occurs over an hourly period, a daily period, or monthly period. The time it takes to move back to support, etc

I could imagine it would be hard to gather statistics on this, but would be well worth while in my mind. Also identifying these different scenarios using price/time/volume.

If a price tests a support level for a while (as opposed to sitting in a proper trading range), everyone will know about the support level. It will be well established and since everyone is ALREADY long from the support level, any moves higher will be met with those taking profits. The momentumn needed to drive up the prices from new/existing buyers simply wont be there.

Theres a fair few books out there that say the same. The more a trendline gets tested the weaker it becomes.

 

[lukeaye]

No the insto will get a crossing done at 70c, or if they really want, at 72c. Conversely if they like a stock and cant get a crossing they will be happy to bid up to $1. The algobot is smarter than a limit buy at 70 hurr durr.

"if" so it is a variable, which means either cold occur. So the context of the situation plays into it.

That means the seller is bigger than the buyer? Or do you mean the insto gets their fill exactly? By definition, if you're a big buyer/seller, and you get fully filled, adverse selection! ie. you probably didnt want to get filled there. If a price tests a support level for a while (as opposed to sitting in a proper trading range), everyone will know about the support level. It will be well established and since everyone is ALREADY long from the support level, any moves higher will be met with those taking profits. The momentumn needed to drive up the prices from new/existing buyers simply wont be there.

No what i mean is, the quota has been completely filled, and price moves up quickly at the end of the fill, so the supply that would have sold higher is now removed, as it has been absorbed lower. The reasoning for the sellers supplying at lower prices could be numerous, a push lower at higher prices could have been a "trap" by the insto to force more sellers out in a panic, enabling prices to eventually drive higher, and them to get filled lower. This Quick drive up now, may pull in more then just "everyone" as you say. When you say everyone is in, there are always more looking to enter, once the stock starts rocketing up, people talk about it, more interest from others who arent in the stock yet start pouring in, there is always the potential for others who didn't know about it before to now know about it and hear about it and want a piece of the cake!

If you look at a very strong basing period, it can last years, several tests can be made of support, this accumulation over a period of years can translate to prices 1000's of percent of what the stock was trading at, at the accumulation phase. If you look at RIO, BHP, NCM they all displayed this in earlier trading days. One institution may have filled there quota on NCM when it was 1.00 and sold at 3.00, another insto may have then picked it up at 3.00, Then more get in at 7.00, 15.00 so on and so forth. Just because You think all the demand is in now, doesnt mean more demand cant step in, and supply is moving higher and higher as less people want to take profits because of this rapid growing stock.

 

[brty]

Lukeaye,

1. The lower price you mentioned hasn't happened, so how can u call the price that hasn't happened a support entry point?

Have you looked at a chart of this to see the support levels?? There were several minor lows of a trading range in July and August of last year at ~ $1.85, there was also the peak of the swine flu scare in April at $1.79.

I called it a place to enter because if it approached there in the right manner that is where I would buy, it's called planning ahead, if it didn't get to this level in the right manner, ie meandering, then I wouldn't bother with the trade. What is so difficult to understand about this??

brty

 

[lukeaye]

Lukeaye,

Have you looked at a chart of this to see the support levels?? There were several minor lows of a trading range in July and August of last year at ~ $1.85, there was also the peak of the swine flu scare in April at $1.79.

I called it a place to enter because if it approached there in the right manner that is where I would buy, it's called planning ahead, if it didn't get to this level in the right manner, ie meandering, then I wouldn't bother with the trade. What is so difficult to understand about this??

brty

brty,

WHAT is the right manor. How do you measure it. How do you measure a meander. Thats what i want to know. Your definition of meander and somebody else may differ greatly. I just want to know how this trade sets up for you.

 

[brty]

Lukeaye,

If you look at a very strong basing period, it can last years

Why would you want your money tied up for years in something going nowhere?? You don't know it is a basing pattern until it breaks up in price, then holds the gains.

WHAT is the right manor.

How about this one.

brty

 

[lukeaye]

Lukeaye,



Why would you want your money tied up for years in something going nowhere?? You don't know it is a basing pattern until it breaks up in price, then holds the gains.



How about this one.

brty

Hahaha good one.

But seriously how would you approach it, what are you looking for, ie volume and price for your entry

 

[brty]

I look for a movement down to support that is running out of puff, especially something that has been doing so for an extended period. To say 6 days or 9 days in a row down movement would be a misnomer, every stock is different and every situation is different. I have deliberately designed my entries so that it cannot be programmed into a computer, as the variables change too often. I also look for volume increase relative to reduced rate of change of price, plus look into where a stock is trading (ie on the bid or ask).

I bought AWC and WPL last Friday, but bailed on both today, because I have an overiding stop of general market risk.

brty

 

[Trembling Hand]

Luke the thing that maybe wrong with you 'bounce off support many times' theory is that it's biased.

If it bounced 3 or 4 time then its also fallen 4 or 5 times from a level not much higher. You are willing to give all the weight to your support but none to the equal yet opposite action.

I could just as easy say, "yeah but your insto is getting smoked by whoever keeps knocking it back at resistance.

Just a thought.

 

[lukeaye]

Luke the thing that maybe wrong with you 'bounce off support many times' theory is that it's biased.

If it bounced 3 or 4 time then its also fallen 4 or 5 times from a level not much higher. You are willing to give all the weight to your support but none to the equal yet opposite action.

I could just as easy say, "yeah but your insto is getting smoked by whoever keeps knocking it back at resistance.

Just a thought.

Yes well good point, that is the debate isn't it. When you have an equal opposing force the question must be asked, where is the weakness?

Then i guess you must look at the evidence on both sides. volume is lower at resitance then support. Spread is larger from the support then resistance, or is it hahaha, it acutally looks pretty equal in terms of spread. Volume is higher at lower levels though, indicating demand? Price, time, and volume then become relative don't they?

So you would have to say the key is identifying where the weakness is

 

[ThingyMajiggy]

You could always wait for the break and trade the re-test?


...like I suck at doing lol.

 

[lukeaye]

You could always wait for the break either way and trade the re-test?


...like I suck at doing lol.

Yes, BUT, Isnt the retest just support again? The exact place we trying to buy from right now?

The retest could test once, or four times, and then become exactly the same.

 

[ThingyMajiggy]

Yes, BUT, Isnt the retest just support again? The exact place we trying to buy from right now?

The retest could test once, or four times, and then become exactly the same.

Not sure what you mean? If it breaks up, out of that range its in, wait for it to come back and test the breakout, once you know its being supported there and holding, go long??

What does it matter if its "support again"? Better than going long on resistance

 

[lukeaye]

Not sure what you mean? If it breaks up, out of that range its in, wait for it to come back and test the breakout, once you know its being supported there and holding, go long??

What does it matter if its "support again"? Better than going long on resistance

What i mean is, its just trading off support again, the same thing as we are doing now, expet we are at a lower level? Is the pullback in biota a retest? or is it a trend change? is it a failure?

So what im saying is, do you think this is a breakout trade anyway? On a larger timeframe it is a breakout already, on a lesser maybe not.

And im not going long on resistance, im going on support.

 

[ThingyMajiggy]

What i mean is, its just trading off support again, the same thing as we are doing now, expet we are at a lower level? Is the pullback in biota a retest? or is it a trend change? is it a failure?

I'm just going off that chart TH posted, from that chart, there looks to be resistance way up near the high there, it is currently down in the range, where TH has labelled about the acc/dist. So, if it breaks up OUT of that range that is labelled, then comes back to re-test the breakout, it holds, that is where I would go long, rather than NOW or at the bottom of the range because you have the obvious selling pushing it back down to support(the range it is IN NOW). But there may be more to it, as I said, I'm just going off that chart.

So what im saying is, do you think this is a breakout trade anyway? On a larger timeframe it is a breakout already, on a lesser maybe not.

How can I know if its a breakout trade if its still in the range? There isn't much point trading the range imo, I'd wait for it to break out, then the risk:reward is much better too, otherwise you could just get chopped to death inside a range. As far as time-frame goes, that all depends, so it might be a breakout on a larger timeframe, depends on how long you want to hold etc whether that comes into account.


Thats how I see it, but thats probably why I'm certainly no pro too

 

[Wysiwyg]

I bought AWC and WPL last Friday, but bailed on both today, because I have an overiding stop of general market risk.

brty

Hi brty,

I'm fairly sure you stated somewhere that you don't catch falling knives! WPL is a falling knife that you bought. Wondering why you did this? Thanks.